Private Fund Disclosures Under the Dodd-Frank Act

PurposeTo discuss factors that a private fund advisor should consider in its decision to remain registered with Securities and Exchange Commission (SEC) or to deregister in light of the D.C. Court of Appeals June 2006 decision in Goldstein v. Securities and Exchange Commission.Design/methodology/approachAnalyzes and compares the advantages and disadvantages of staying registered and deregistering; discusses the requirements of state registration for advisers that are note registered with the SEC; and analyzes the consequences to private fund advisors if the SEC does not repropose certain rule amendments adopted along with Rule 203(b)(3)‐2 concerning bookkeeping, performance fees, and custody.FindingsAdvisers should carefully consider their facts and circumstances and their business plans when analyzing the consequences of deregistration with the SEC – most importantly, the possibility of multiple state registration – before filing to deregister. Especially if the SEC restores the rule amendments the Goldstein decision struck down, staying with the SEC – the regulator you know – may be better than registering with a state.Originality/valueProvides an up‐to‐date analysis of factors that private funds should consider concerning SEC registration in light of the recent Goldstein decision.

Summary A key element in determining a project's commercial maturity is the evidence of a firm intent to proceed with development within a reasonable time frame. The Petroleum Resource Management System (PRMS) (SPE 2007) recommends 5 years as a benchmark, although a longer time can be applied in some cases. The U.S. Securities and Exchange Commission (SEC) also provides specific guidance and requirements on undeveloped reserves and the 5-year-maturation time limit. Despite the apparent clarity in the PRMS and SEC regulations regarding project maturity, this paper describes actual examples in the public domain in which different levels of commercial maturity were introduced within a project for proved and probable reserves as a result of the 5-year time limit. This has resulted in projects with their proved reserves reclassified as probable reserves because they will not be developed within the 5-year time limit. This paper reviews SPE standards and SEC wording on commercial maturity requirements and the 5-year time limit, providing clarity on whether a project's recoverable volumes should be classified as reserves or contingent resources if its undeveloped reserves are not matured into developed reserves within 5 years of their first reporting, and specific circumstances for a longer maturation time frame do not exist. When referring to projects with proved undeveloped reserves falling outside the 5-year time limit, the SEC uses different wording throughout the Final Rule document issued in January 2009 (NARA 2009). This has resulted in apparently different interpretations of the requirements for projects to meet this criterion. On the basis of the wording used in SEC forms 10-K and 20-F, public disclosures seem to range from reporting only the projects with undeveloped reserves that have been continuously disclosed for 5 years or more in the annual filings, to reporting all projects that have been or will remain undeveloped for 5 years or more from the time of their first disclosure date. Given the wording in the SEC Final Rule, it is understandable that different interpretations of the regulations may emerge. This paper presents an analysis of the SEC language used in the Final Rule and related wording used in SEC comment letters from the last few years. Failing further clarity from the SEC, this analysis provides the authors' opinion on the clarity required to ensure consistency in the way the SEC 5-year rule should be interpreted and in the spirit of comparability among companies that provides the basis for the SEC requirement to report these undeveloped reserves as a separate item. Another area discussed in this paper relates to the wording used by the SEC regarding a project's undeveloped-reserves volumes (i.e., its undeveloped reserves in barrels of oil equivalent) and the potential different interpretations that the industry may give to the SEC Final Rule. A simple example is presented to provide clarity on the option that is most likely to meet the SEC requirements. Potential inconsistencies resulting from different interpretation are highlighted. The analysis and recommendations presented in this paper aim at creating consistent approaches leading to better comparability among oil and gas companies by use of an aligned interpretation of standards and requirements for reserves estimation, classification, categorization, and disclosure.

Regulatory Path Dependency in Securities Regulation: Evidence from Israel and U.S.

The Rise and Fall of the SEC in Bankruptcy

On the Decision to Regulate Hedge Funds: The SEC's Regulatory Philosophy, Style, and Mission

Prior to 1930, the upward revaluation of fixed assets was common in the United States. By 1940 the practice was virtually extinct, and for decades thereafter U.S. corporations which were registered with the Securities and Exchange Commission (SEC) have been constrained both from making upward asset revaluations, and from presenting supplementary information about the ‘current values’ of fixed assets. These changes were effected without the publication of any rules or guidelines by either the SEC or the U.S. accounting profession.This paper traces the early history of SEC activities and policies in relation to ‘write‐ups’, using primary source materials which include minutes of SEC meetings, internal memoranda prepared by SEC staff, and reports of SEC decisions in stop‐order proceedings. These documents show that, initially, SEC staff actively ‘discouraged’ write‐ups through the exercise of administrative discretion in the course of assessing whether documents filed with the Commission were adequate to support the registration of prospectuses or securities. Later, formal decisions to reject the use of ‘appraisals’ were based on findings that estimates of current values had been arrived at arbitrarily or capriciously. Over a twenty‐five‐year period no decisions were located which formally rejected write‐ups or the disclosure of current values when they were based on defensible estimates of current market prices. However, subsequently these decisions were cited as precedents for the rejection of the use of both ‘appraisals’ and estimates of market prices as the basis for valuing assets in all financial reports lodged with the SEC. By the 1940s, the SEC was using its registration powers to ‘censor'financial statements which referred to estimates of current values, regardless of the evidence used to arrive at those estimates. By the 1950s, the SEC had extended its policy of censorship to prevent any disclosure of estimates of ‘current values’— even when those disclosures were only made in ‘supplementary’ notes in takeover documents.

The Sixth Commissioner

The Financial Stability Oversight Council (FSOC) was created under the Dodd-Frank Act with the primary mandate of guarding against systemic risk and correcting perceived regulatory weaknesses that may have contributed to the financial crisis of 2008-2009. The Securities and Exchange Commission (SEC) collects data pertaining to private fund advisers in order to facilitate FSOC’s assessment of non-bank financial institutions’ potential systemic risks. Evidence that the SEC’s data collection encounters accuracy and consistency problems might hamper FSOC’s ability to evaluate the systemic risk of private fund advisers. The author shows that while the SEC’s data plays a crucial role in all stages of FSOC’s systemic risk assessment of private fund advisers, FSOC relies most heavily on some of the most problematic disclosure items collected by the SEC.

The US Securities and Exchange Commission (SEC) late last year unanimously adopted revisions to its rules governing oil and natural gas reserves reporting, with those revisions aligned with and incorporating many of the definitions in the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS). The revised rules will go into effect on January 1, 2010. The SEC oversees US securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. Companies publicly offering securities on US exchanges are required to file regular disclosures to the SEC, concerning their securities and the scope, practices, condition, and risks of their businesses with respect to investors. The changes just adopted by the SEC, announced December 29, 2008, marked the first major revision of the commission's reserves-reporting rules since 1983. "In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors," said Christopher Cox, then-Chairman of the SEC. "These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company's balance sheet, is of significance to investors in making informed investment decisions." Leo Roodhart, 2009 SPE President, praised the commission for modernizing the reporting rules. "The SEC is to be commended for updating the rules on oil and natural gas reserves reporting to reflect changes in technology, and for using the PRMS primarily as the basis for the technical changes," he said. "The updated rules recognize the importance of new technologies in making accurate and reliable estimates of oil and natural gas reserves as the industry develops resources in harsher environments, including ultradeepwater and the Arctic, as well as more unconventional resources." The PRMS was developed by SPE in collaboration with the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers (SPEE). "SPE's Oil and Gas Reserves Committee is gratified that our work has served as a foundation for improving the information provided to investors and the public about the reserves controlled by public companies," said Delores Hinkle, SPE Oil and Gas Reserves Committee Chairperson. "The updated rules allow companies the flexibility to provide additional reserve information to the investing public and should result in better reserve estimates, due to the inclusion of the advanced technologies and evaluation practices now in use around the world."

Is the United States losing its position as the world's leading capital market? Recent statistics suggest that U.S. stock exchanges have been losing ground to foreign stock exchanges. The share of equity raised in global public markets represented by the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX) combined dropped from 28.8% in 2002 to 23.0% in 2009.1 1Comm. on Capital Markets Regulation, The Competitive Position of the U.S. Public Equity Market 7 (Dec. 4, 2007), available athttp://www.capmktsreg.org/pdfs/The_Competitive_Position_of_the_US_Public_Equity_Market.pdf; World Fed'n of Exch., 2009 Annual Report and Statistics 118, available athttp://www.world-exchanges.org/files/statistics/excel/WFE09%20final.pdf. Foreign delistings from the NYSE rose from 3.9% of all listed foreign companies in 1997 to 8.7% in 2009.2 2Comm. on Capital Markets Regulation, supra note 1, at 21; World Fed'n of Exch., supra note 1, at 104–05. The U.S. market capitalization decreased from 47.8% of the total global market capitalization in 1999 to 31.6% in 2009.3 3 Brown, Elizabeth F., The Tyranny of the Multitude Is a Multiplied Tyranny: Is the United States Financial Regulatory Structure Undermining U.S. Competitiveness?, 2 Brook. J. Corp. Fin. & Com. L. 369, 393– 94 (2008); World Fed'n of Exch., supra note 1, at 102. Market capitalization is as measured by the World Federation of Exchanges. Although in 2000, nine of the top ten initial public offerings (IPOs) in the world took place on U.S. exchanges, by 2005, only one of the twenty-five largest IPOs took place on a U.S. exchange.4 4Eric Pan, Why the World No Longer Puts Its Stock in Us 2–3 (Dec. 13, 2006) (Benjamin N. Cardozo Sch. of Law Jacob Burns Inst. for Advanced Legal Stud. Working Paper No. 176), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=951705. In the first half of 2010, Asian exchanges dominated equity IPOs, with $22.6 billion raised on the Shenzhen Stock Exchange and US$8.9 billion raised on the Shanghai Stock Exchange as opposed to $6.7 billion on the NYSE.5 5World Fed'n of Exch., Market Highlights For First Half-Year 2010, 8, available athttp://www.world-exchanges.org/files/file/stats%20and%20charts/July%202010%20WFE%20Market%Highlights.pdf. Commentators argue that one reason for the declining importance of the U.S. stock markets is the high level of regulation in the United States, especially after the passage of the Sarbanes-Oxley Act in 2002.6 6Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat 745 (codified in scattered sections of 11, 15, 18, 28, and 29 U.S.C.) [hereinafter SOX]. Proponents of regulatory competition argue that the U.S. securities regulatory regime is too onerous and that companies should, instead, be allowed to choose which jurisdiction's securities law should apply to them. See, e.g., Choi, Stephen, Regulating Investors Not Issuers: A Market-Based Proposal, 88 Cal. L. Rev. 279 (2000); Choi, Stephen J. & Guzman, Andrew T., Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. Cal. L. Rev. 903 (1998); Coffee, John C., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 Colum. L. Rev. 1757 (2002); Palmiter, Alan R., Toward Disclosure Choice in Securities Offerings, 1999 Colum. Bus. L. Rev. 1; Romano, Roberta, Empowering Investors: A Market Approach to Securities Regulation, 107 Yale L.J. 2359 (1998). But there is also a concern that regulatory competition will lead to a race to the bottom. See Cox, James D., Choice of Law Rules for International Securities Transactions?, 66 U. Cin. L. Rev. 1179, 1186 (1998) (arguing the parties should not be able to avoid U.S. securities regulation in private securities transactions partly because there is a "need to protect investors from themselves"). For more on the regulatory competition debate, see Jackson, Howell E. & Pan, Eric J., Regulatory Competition in International Securities Markets: Evidence from Europe in 1999—Part I, 56 Bus. Law. 653, 658 (2001). In response to comment letters from many foreign private issuers requesting exemptions from some of the requirements of SOX, the Securities and Exchange Commission (SEC) did grant certain accommodations. In addition, in 2007, the SEC adopted a rule that allowed certain foreign private issuers to deregister and no longer be subject to U.S. securities regulation (the "deregistration rule"). With the recent global financial crisis, however, there have been renewed calls for more stringent U.S. regulation to prevent future financial crises.7 7 See, e.g., Coffee, John C. & Sale, Hillary A., Redesigning the SEC: Does the Treasury Have a Better Idea?, 95 Va. L. Rev. 707 (2009); Cunningham, Lawrence A. & Zaring, David, The Three or Four Approaches to Financial Regulation: A Cautionary Analysis Against Exuberance in Crisis Response, 78 Geo. Wash. L. Rev. 39 (2009). The current crisis has rattled world markets, resulting in, among other events, the bankruptcy of Lehman Brothers and some foreign governments needing International Monetary Fund packages.8 8 See, e.g., Davidoff, Steven M. & Zaring, David, Regulation by Deal: The Government's Response to the Financial Crisis, 61 Admin. L. Rev. 463 (2009); Okamoto, Karl S., After the Bailout: Regulating Systemic Moral Hazard, 57 UCLA L. Rev. 183 (2009). In a November 17, 2009 speech, SEC Commissioner Kathleen Casey stated that one of the lessons of the current financial crisis is that financial stability depends on investor confidence, which in turn depends on the transparency of financial statements.9 9Kathleen L. Casey, Comm'r, SEC, Lessons from the Financial Crisis for Financial Reporting, Standard Setting and Rule Making (Nov. 17, 2009), available athttp://www.sec.gov/news/speech/2009/spch111709klc.htm. As Congress had directed the SEC to review and study fair value accounting standards, the SEC delivered a report that included several recommendations on changes to fair value accounting standards to Congress which may result in new securities regulations.10 10 Id. In an increasingly global market, it is important for the United States to understand—before undertaking further reforms—the effects of increased securities regulation on the competitiveness of its stock markets. While U.S. securities laws should be reformed to decrease the risk of, and mitigate the effects of, future financial crises, absent a global harmonized regulatory regime, the United States should be careful to minimize the costs imposed by U.S. securities regulation on foreign private issuers.11 11"Foreign private issuer" is defined in Rule 405 promulgated under the Securities Act of 1933 and Rule 3b-4 promulgated under the Securities Exchange Act of 1934. 17 C.F.R. §§ 230.405, 240.3b-4 (2010). The United States benefits from foreign private issuers listing on domestic exchanges. And, U.S. investors find it easier to invest in shares of foreign companies if they are listed in the United States. In addition, foreign private issuers listed in the United States are subject to U.S. securities law, which provides better investor protection than many comparable foreign laws.12 12 See infra Part I.A. The experience of foreign private issuers accessing the U.S. market in the 2000s, especially after SOX and the deregistration rule, provides useful guidance regarding the effect of strengthened U.S. securities law on the attractiveness of U.S. markets for foreign private issuers. In this article, I examine the impact of post-SOX strengthening of U.S. securities law on the conduct of foreign private issuers. Part I provides some general background about foreign private issuers listing in the United States. It starts by discussing the benefits to the United States of having foreign private issuers list on U.S. exchanges. Part I also explores the costs and benefits of listing in the United States for foreign private issuers, especially in light of potential flowback13 13"Flowback" refers to American investors choosing to convert their American Depository Receipts (ADRs) into ordinary shares that are traded on non-U.S. stock markets. problems and the increasing availability of foreign exchanges as alternatives to the U.S. exchanges. Next, in Part II, I discuss the legal regime facing foreign private issuers, looking at the SEC's pre-SOX attempts to make the U.S. markets more attractive to them, at the controversy over the application of SOX to foreign private issuers, and at the SEC's post-SOX accommodations for foreign private issuers. Part II also reviews prior studies on SOX's effects on foreign private issuers. Part III then describes my three studies of foreign private issuers' behavior after SOX. The first study looks to see if, in a given region, the median relative U.S. trading volume14 14"Relative U.S. trading volume" refers to the trading volume the issuer obtains in the United States over the trading volume the issuer obtains in its home market. "Trading volume" is the number of shares of a security traded in a given market during a given day. For details on the calculation for relative U.S. trading volume, see infra Part III.A.1. of issuers that delist tends to be lower than the median relative U.S. trading volume of issuers that do not and to see which region's issuers are likely to find the United States to be a less important market. For each of the six regions15 15The six regions are East Asia, Europe, Latin America, Japan, Israel, and Australia. See infra Part III.A.1. I studied, issuers who remain listed on the U.S. exchanges as of January 31, 2010 tend to have lower relative U.S. trading volumes than those who voluntarily delisted16 16Issuers who voluntarily delisted are those who exited the U.S. market other than (i) those who were delisted by a U.S. exchange or (ii) those who were merged into another company. before January 31, 2010. Issuers from developed countries tend to have lower relative U.S. trading volumes. My second study finds that more issuers from regions with lower relative U.S. trading volume voluntarily delisted from the United States after the passage of SOX. My third study reviews SEC filings, cataloging the reasons foreign private issuers give for delisting. Many of the delisting issuers stated in press releases filed with the SEC that their low trading volumes in the United States did not justify the costs of being listed in the United States, especially after the additional regulatory burden imposed by SOX. Finally, I conclude by looking at the implications of the finding that issuers from developed regions with low relative U.S. trading volumes are more likely to delist as a result of increased securities regulation imposed by SOX. Because issuers from more developed countries are better investment prospects for U.S. investors, the SEC should consider granting these foreign issuers exemptions from any new U.S. securities regulations, to encourage them to continue listing in the United States. This part provides some general background, discussing the reasons the United States wants to encourage foreign private issuers to list on its exchanges. To maintain these benefits, the United States must ensure that a U.S. listing provides foreign private issuers with more benefits than costs, especially as foreign private issuers may face flowback problems, and foreign securities exchanges are increasingly becoming viable alternatives to U.S. exchanges. This part discusses the benefits and costs for foreign private issuers listing in the United States. Understanding both the benefits to the United States of having foreign issuers list on U.S. exchanges and what foreign private issuers perceive to be the benefits and costs of listing in the United States then assists in a determination of which foreign private issuers should be encouraged to list in the United States and how the U.S. securities regulations might be used to encourage these issuers to list. U.S. retail investors and the overall U.S. capital markets benefit from foreign private issuers listing in the United States. Investing in foreign companies provides investors with diversification, allowing them to select the optimal trade-off between risk and return.17 17U.S. Chamber of Commerce Comm'n on the Regulation of U.S. Capital Markets in the 21st Century, Report and Recommendations 39 (Mar. 2007), available athttp://library.uschamber.com/sites/default/files/reports/0703capmarkets_full.pdf [hereinafter U.S. Chamber of Commerce Comm'n Report]; Jackson, Howell E., A System of Selective Substitute Compliance, 48 Harv. Int'l L.J. 105, 111 (2007); Tafara, Ethiopis & Peterson, Robert J., A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework, 48 Harv. Int'l L.J. 31, 41 (2007). Further, foreign companies are attractive to U.S. retail investors because many of the fastest-growing companies are foreign companies.18 18U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Davidoff, Steven M., Regulating Listings in a Global Market, 86 N.C. L. Rev. 89, 115– 16 (2007); Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 48. U.S. retail investors can invest abroad but they face certain barriers. First, there are risks associated with investing in a foreign market.19 19Jackson, supra note 17, at 112; Tafara & Peterson, supra note 17, at 41–42. U.S. retail investors investing abroad may be unaware that they are investing in securities not subject to SEC oversight.20 20Jackson, supra note 17, at 112; Tafara & Peterson, supra note 17, at 42. Foreign countries may not have an effective legal enforcement regime.21 21Tafara & Peterson, supra note 17, at 42. It is easier and less risky for U.S. retail investors to invest in foreign companies if they are listed in the United States.22 22U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Tafara & Peterson, supra note 17, at 41. Listing in the United States subjects the foreign private issuer to U.S. securities law, which gives better investor protection than comparable law in many foreign jurisdictions.23 23Tafara & Peterson, supra note 17, at 42; Doidge, Craig G. et al., Why Are Foreign Firms Listed in the U.S. Worth More?, 71 J. Fin. Econ. 205, 209 (2004). Second, there are transactional costs associated with investing abroad. To invest abroad, U.S. investors often either have to trade on a foreign exchange through a U.S.-registered broker, thereby having to go through two layers of intermediaries, or have to open an account with a foreign broker.24 24Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 47–48. U.S. retail investors may also lack adequate information about these foreign companies because foreign private issuers and foreign financial broker-dealers that do not comply with SEC registration and compliance requirements are not able to directly solicit U.S. retail investors.25 25U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 48. Maintaining an environment friendly to foreign private issuers is important to the United States remaining the global financial center. Foreign private issuers constitute a significant portion of the IPOs and listings in the United States.26 26Brown, supra note 3, at 395. U.S. exchanges benefit from being able to obtain listing and trading fees, one of their major sources of revenue, from foreign private issuers that list on them.27 27Davidoff, supra note 18, at 127–28. For the schedule of fees paid to NYSE, see http://www.nyse.com/regulation/nyse/1147474807417.html (last visited Oct. 15, 2010). Regarding NASDAQ's fees, see NASDAQ, Listing Standards and Fees ( July 2010), available athttp://www.nasdaq.com/about/nasdaq_listing_req_fees.pdf. Keeping the U.S. markets attractive to foreign private issuers is important for maintaining the dominance of U.S. financial services sector, an important sector for the United States. One out of every nineteen Americans works in financial services and the industry represents eight percent of the U.S. gross domestic product.28 28Michael R. Bloomberg & Charles E. Schumer, Sustaining New York's and the US' Global Financial Services Leadership 10 ( Jan. 2007), available athttp://www.nyc.gov/html/om/pdf/ny_report_final.pdf. The financial services industry is also one of the fastest-growing sectors in the U.S. economy.29 29 Id. Continued growth in this industry provides the United States with jobs and tax revenues.30 30 Id. at 9–10. To obtain such benefits, the United States needs to make sure that the benefits of listing in the United States for desirable foreign companies outweigh the costs. Foreign private issuers typically list in the United States for financial considerations such as increased liquidity, potentially lower cost of equity capital, a desire to increase their U.S. shareholder base, and ability to raise money from equity.31 31 See G. Andrew Karolyi, What Happens to Stocks That List Shares Abroad? A Survey of the Evidence and Its Managerial Implications 34–35 (Sept. 1996) (NYSE Working Paper No. 96-04), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1612; Bancel, Franck & Mittoo, Usha R., European Managerial Perceptions of the Net Benefits of Foreign Stock Listings, 7 Eur. Fin. Mgmt. 213, 224– 25 (2001) (surveying European managers); Fanto, James A. & Karmel, Roberta S., A Report on the Attitudes of Foreign Companies Regarding a U.S. Listing, 3 Stan. J.L. Bus. & Fin. 51, 63– 66 (1997); Mittoo, Usha R., Managerial Perceptions of the Net Benefits of Foreign Listing: Canadian Evidence, 4 J. Int'l Fin. Mgmt & Acct. 40, 58 (1992) (surveying managers of Canadian companies cross-listed in the United States and the United Kingdom); Pagano, Marco et al., The Geography of Equity Listing: Why Do Companies List Abroad?, 57 J. Fin. 2651, 2685– 87 (2002) (looking at companies listed on ten major European exchanges and seeing who listed in the United States rather than in Europe). Listing in the United States also provides foreign private issuers with acquisition currency, prestige, and publicity.32 32 See Bancel & Mittoo, supra note 31, at 224–25; Fanto & Karmel, supra note 31, at 63–66. Some foreign private issuers list because all the companies in the relevant industry list in the United States.33 33 See Fanto & Karmel, supra note 31, at 52, 63–66. Another potential reason to list in the United States is that U.S. investors may be better able to identify which of the new, innovative firms are likely to succeed.34 34 See Asher Blass & Yishay Yafeh, Vagabond Shoes Longing to Stray: Why Foreign Firms List in the United States 16 (unpublished manuscript, on file with author), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=248948. Previous studies have found that foreign private issuers' perceptions of the benefits of listing in the United States have a basis in reality. Studies have found that cross-listing in the United States leads to increased liquidity,35 35 See Foerster, Stephen R. & Karolyi, G. Andrew, International Listings of Stocks: The Case of Canada and the US, 24 J. Int'l Bus. Stud. 763, 773– 79 (1993) (looking at fifty-three Toronto Stock Exchange–listed stocks that listed on U.S. exchanges from 1981 to 1990); Karolyi, supra note 31, at decreased to domestic market See Foerster, Stephen R. & Karolyi, G. Andrew, The of Market and on Evidence from Foreign Stock Listing in the United States, J. Fin. (looking at firms from countries that listed in the United States between and Karolyi, supra note 31, at But see et al., of to Markets and Its on J. Int'l from between and that total risk decreased for firms but not for firms after the of the and increased See et al., International Cross-Listings and J. Fin. & Analysis (2002) from a study of a one before and one after a listed in the NYSE or Stock Exchange and from the number of a is in the and the Financial during the in that and increase after listing on the for foreign private issuers. to the cost of capital and increase share for foreign private issuers, both the and the of these effects are See & The Impact of an NYSE Listing on the Global of Stocks 2–3 (NYSE Working Paper No. foreign stocks listed on the NYSE between and and that stocks from developed markets on increase in home market value of trading after stocks from markets experience only a increase in home market et al., The Market Impact of The Case of 2 (1998) (looking at eight stocks listed in the United States or traded on markets between and and finding no of listing R. & Market and the of Capital in International Equity 35 J. Fin. & Analysis from foreign stocks that their first between and that cross-listing the cost of capital for foreign & Karolyi, supra note at that foreign stocks a significant during the before listing and also during the listing but that shares on during the after Karolyi, supra note 31, at 35 that share increased in the first after listing but that during the after listing The Market to International Evidence from J. Fin. Econ. from foreign stocks that their first between and that the of a listing were for firms that list on major U.S. & E., of Foreign Listings on U.S. J. Int'l Bus. Stud. effect from equity of foreign firms listed on the NYSE and the between and But see & J., Are to Rev. Fin. Stud. there an increase in there a for to several after listing and there of a effect on for firms While private for foreign private issuers tend to their home market on major U.S. public exchanges tend to the relevant et al., supra note at Foerster, Stephen R. & Karolyi, G. Andrew, The of Global Equity Offerings, 35 J. Fin. & Analysis Foreign private issuers obtain more of a if they from markets with lower accounting standards or lower of investor et al., supra note at & Karolyi, supra note at The increased may be because investors see a to list on an exchange with a environment as a of about its future 41 See C. & Disclosure and Listing on Foreign Stock J. & Fin. Listing in the United States may also increase the value of the shares because it the ability of a shareholder to private benefits from the See Doidge, Craig U.S. Cross-Listings and the Benefits of Evidence from J. Fin. Econ. that foreign firms that list in the United States and are subject to U.S. securities regulation tend to have lower than firms that do especially if these foreign firms are from countries with shareholder et al., supra note See also & Benefits of International J. Fin. (2004). and because it in non-U.S. firms and increased et al., and Does Listing in the United States a and Market 41 J. Acct. Foreign private issuers that list in the United States tend to their equity to and to into than do foreign companies not listed in the United Evidence from of U.S. The of Stock as an (Sept. (unpublished manuscript, on file with author), available & Cross-Listings and Evidence, 34 Fin. Mgmt. Firms from regions list in the United States for For European issuers, the reason to list in the United States is better by and the desire to obtain acquisition See Jackson, Howell E. & Pan, Eric J., Regulatory Competition in International Securities Markets: Evidence from Europe in 1999—Part II, 3 Va. L. & Bus. Rev. 224– 25 (2008); see also et al., supra note 31, at that of listing in the United States are the of and investors, than in Europe, and a The reasons firms list in the United States on their firms list to they can comply with the U.S. securities law requirements and to and is a less important because the market is M. Regulation of Issuers U.S. Public Equity Markets (2002) (unpublished manuscript, on file with on the other list to of increased and relative See at For issuers from other Asian the reason to U.S. markets is better from the liquidity, by 48 See Regulatory Competition in International Securities Markets: Evidence from in and (2002) (unpublished manuscript, on file with Regulatory Competition in International Capital Markets: Evidence from in 3 J.L. & Bus. 61 Asian issuers have found that they to go to the U.S. market for transactions over See at 13, Some Asian and firms list in the United States because they their home listing supra note at In addition, the has encouraged some to list in the United States to to the of their for to comply with U.S. securities listed must effective Id. at 21; supra note at Finally, listing in the United States firms to convert their to U.S. allowing them to obtain acquisition supra note at firms list in the United States to be subject to lower if they are listed on a U.S.

Solving the Congressional Review Act’s Conundrum

Purpose – The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting violations of the Securities Exchange Act of 1934 (Exchange Act) by public company officers, directors and significant stockholders. The paper considers the notable features of the first round of SEC enforcement actions pursuant to that initiative and proposes measures public companies and their insiders can adopt to enhance compliance with their reporting and related disclosure obligations under the Exchange Act. Design/methodology/approach – The paper examines the SEC’s enforcement initiative against the backdrop of the agency’s enforcement activity since 1990 for violations by public company insiders of the reporting provisions of Sections 13 and 16 of the Exchange Act. The paper summarizes the features of the reporting violations that attracted SEC enforcement interest in the recent proceedings and identifies the factors apparently weighed by the SEC in determining the amount of the penalties sought against those charged with the violations. Findings – The SEC’s latest enforcement actions are unprecedented for insider reporting violations. The new enforcement initiative represents an abandonment by the SEC of its largely passive approach of the past dozen years in which it charged insider reporting violations only when they related to fraud or other major violations of the securities laws. If reporting violations are flagrant, the SEC now promises to target the offenders for enforcement on a stand-alone basis without regard to other possible wrongdoing. The SEC also cautions that, as it did in some of the recent enforcement actions, it may charge companies that promise to assist their insiders in the preparation and filing of their reports, but do not to make the filings in a timely manner, with contributing to the filing failures. Originality/value – The paper provides expert guidance from experienced securities lawyers.

The Role of Academic Research in SEC Rulemaking: Evidence from Business Roundtable v. SEC

ABSTRACTTo shed light on the role that academic research plays in Securities and Exchange Commission (SEC) rulemaking, this paper examines the SEC's patterns of consumption of academic research from 2007 through 2017. We show how the Business Roundtable v. SEC ruling in 2011 increased consideration given to academic research during SEC rulemaking. We find that after the ruling, the SEC cites more papers in its proposed rules and, in particular, more papers that illustrate the costs of regulation. This change in academic citations results in fewer negative comment letters on proposed SEC regulations. We survey academics whose research was cited by the SEC, and the majority respond that the SEC's description of their work is completely or mostly accurate. When we survey general academics, their average rating of the SEC's accuracy is lower, although the rating improves regarding specific SEC quotes citing academic research. Although there is still room for a more substantive discussion of research, having a higher standard of cost‐benefit analysis leads to a more balanced discussion of academic research.

Improvements in SEC Economic Analysis Since Business Roundtable: A Structured Assessment